A recent report from the corporate advisors Arden Partners offers a bleak view of the Magic Circle’s future in the legal market. The report, titled “A requiem for the Magic Circle?,” predicts that the five elite U.K. law firms “may need to re-invent themselves and reposition towards a mid-market position” in response to fast-growing U.S. competition, along with the increasing market share being gained by the Big Four accountancy firms (Deloitte, PwC, KPMG, and EY).
The report highlighted three factors to support its prediction:
First, U.S. firms are out-competing Magic Circle firms for top-end work, with U.S. firms beginning to overtake U.K. firms in corporate revenue. The report’s researchers do not believe the Magic Circle firms have been able to maintain a strong enough U.S. client base since the financial crisis to remain competitive.
Second, U.K. firms have not been able to keep up with the growth rate of U.S. firms. While U.K. law firms have only managed to increase their revenue 30% since 2020, the top 50 U.S. firms in London have almost doubled revenue in that same time period.
Third, Magic Circle firms have been unable to adequately compete for top junior talent, as they do not have the ability to match what U.S. firms can offer. “The Magic Circle are facing relentless wage inflation and they simply can’t compete,” the report says. “That’s not sustainable, since if you can’t get elite people into an elite model, then it simply doesn’t work.” Essentially, the Magic Circle firms are being priced out of top junior talent, and that will have knock-on effects long into the future.
Altogether, these factors could spell doom for the Magic Circle. “It has taken U.S. law firms the better part of two decades to reach critical mass. From here, the competitive challenge is likely to snowball” states Arden Partners.
The Magic Circle is being squeezed from multiple sides, now that the Big Four accounting firms have achieved a sufficiently large market share and roster of clients to legitimately compete with mid-market as well as top-tier law firms. “With the Big Four and [Alternative Legal Service Providers] attacking the soft underbelly, the Magic Circle are being forced to focus more on the high end, but are being increasingly outcompeted by the Americans,” reads the report.
The report ends on a damning note for the Magic Circle: “[the Magic Circle] are a room full of millionaires that refuse to believe that their business model is in trouble”.